Marchex Announces Fourth Quarter and Full Year 2018 Results

SEATTLE–(BUSINESS WIRE)–lt;a href=”https://twitter.com/hashtag/marketing?src=hash” target=”_blank”gt;#marketinglt;/agt;–Marchex,
Inc. (NASDAQ:MCHX), a leading provider of call analytics that drive,
measure, and convert callers into customers, today announced its
financial results for the fourth quarter and full year ended December
31, 2018.

Q4 and Full Year 2018 Financial Highlights

Revenue was $23.1 million for the fourth quarter of 2018, compared to
$21.8 million for the fourth quarter of 2017. Revenue was $85.3
million for 2018, compared to $90.3 million for 2017.

Core analytics revenue was $10.9 million for the fourth quarter of
2018, compared to $7.4 million for the fourth quarter of 2017. Core
analytics revenue was $35.4 million for 2018, compared to $29.4
million for 2017.

Net loss applicable to common stockholders was $0.6 million for the
fourth quarter of 2018 or $0.01 per diluted share, compared to a net
loss of $0.8 million or $0.02 per diluted share for the fourth quarter
of 2017. Net loss applicable to common stockholders was $2.7 million
for 2018 or $0.06 per diluted share, compared to a net loss of $6.4
million or $0.15 per diluted share for 2017.

Q4 2017

Q4 2018

FY 2017

FY 2018

Revenue

$

21.8 million

$

23.1 million

$

90.3 million

$

85.3 million

Net cash provided by operating activities

$

0.0 million

$

1.0 million

$

1.7 million

$

5.1 million

Cash Balance

$

104 million

$

45 million

Non-GAAP Results1:

Adjusted EBITDA

$

1.0 million

$

1.2 million

$

1.0 million

$

2.2 million

Adjusted non-GAAP income (loss) per share1 for the fourth
quarter of 2018 was $0.02, compared to $0.01 for the fourth quarter of
2017. Adjusted non-GAAP income (loss) per share1 for 2018
was $0.00, compared to ($0.03) for 2017.

1

Reconciliations of non-GAAP measures are included in the
financial tables attached to this press release and we encourage
investors to examine the reconciling adjustments between the GAAP
and non-GAAP measures.

Strategic Priorities Update

Grow New and Existing Client Relationships. In the fourth
quarter, with the addition of Callcap and Telmetrics, Marchex added more
than 300 new clients, including enterprise brands in verticals like
Auto, Healthcare, Home Services, Telecommunications and Small and
Medium-Sized Business Resellers.

Accelerate Product Innovation. In 2018, Marchex expanded its
conversational data footprint to more than one billion minutes of
consumer-to-business conversations. This foundational asset gives
Marchex one of the largest data sets to leverage as a building block for
innovation in developing new sales acceleration solutions to help
businesses grow.

During the year, the company significantly grew its data science
organization and also launched the Marchex Innovation Development (MIND)
Lab, a new research and development group, to support product innovation
and help businesses engage and nurture customer relationships across
communications channels, including voice and text. The MIND Lab is
incubating new technologies and products utilizing Marchex’s continuing
investment in speech technology, artificial intelligence, personalized
customer solutions and conversational analytics. Marchex appointed
Dr. Junmei Zhong, a pioneer in artificial intelligence (AI) and natural
language processing (NLP), as the Company’s Chief AI Scientist.

Expanded conversational analytics leadership with the acquisition of
Callcap. In addition to the company’s previously announced
acquisition of Telmetrics, in November, Marchex announced the
acquisition of Callcap, a leading call monitoring and analytics company.
With the addition of Callcap, Marchex adds a team that specializes in
call monitoring and analytics solutions for more than twelve industry
verticals, including home services, healthcare, automotive, and
telecommunications. Callcap’s innovative technology powers complex,
custom evaluations of millions of calls each month, providing deep
insights into consumer and business conversations with numerous
integrations into the call center environments of many franchise
businesses.

“In 2018, we made considerable progress in building a leading
conversation analytics company through a combination of product
innovation, customer progress and strategic initiatives, which is
helping to accelerate our growth,” said Mike Arends, Chief Financial
Officer. “In 2019, we expect to leverage our industry leading
conversational data assets based on hundreds of millions of
consumers-to-businesses conversations to introduce new sales
acceleration solutions that solve critical pain points for our
customers. As we expand to include new communication channels across
voice and text, we will continue to invest in our artificial
intelligence and data science initiatives to create more long-term
growth opportunities for Marchex.”

Business Outlook

The following forward-looking statements reflect Marchex’s expectations
as of February 13, 2019.

For the first quarter, the Company anticipates $12.5 million or more
in Marchex’s core analytics revenue, representing a more than 50%
increase year-over-year.

For the first quarter, the Company anticipates seeing stabilization or
potentially a modest increase in revenue related to Marchex’s
marketplace products as compared to the fourth quarter 2018.

Financial Guidance for the First Quarter ending
March 31, 2019

Total Revenue

$25 million or more

Income (loss) from operations

($3) million or better

Adjusted OIBA1,2

breakeven or better

Adjusted EBITDA1,2

$1 million or better

2

First quarter GAAP income (loss) from operations is expected to
be ($3) million or better, assuming stock-based compensation and
amortization of intangibles between $2.8 and $3 million for the
quarter.

Conference Call and Webcast Information

Management will hold a conference call, starting at 5:00 p.m. ET on
Wednesday, February 13, 2019 to discuss its fourth quarter and year
ended December 31, 2018 financial results and other company updates.
Access to the live webcast of the conference call will be available
online from the Investors section of Marchex’s website at www.marchex.com. An
archived version of the webcast will also be available at the same
location two hours after completion of the call.

About Marchex

Marchex
understands the best customers are those who call your company – they
convert faster, buy more, and churn less. Marchex provides solutions
that help companies drive more calls, understand what happens on those
calls, and convert more of those callers into customers. Our actionable
intelligence strengthens the connection between companies and their
customers, bridging the physical and digital world, to help brands
maximize their marketing investments and operating efficiencies to
acquire the best customers.

This press release contains forward-looking statements that involve
substantial risks and uncertainties. All statements, other than
statements of historical facts, included in this press release regarding
our strategy, future operations, future financial position, future
revenues, other financial guidance, acquisitions, dispositions,
projected costs, prospects, plans and objectives of management are
forward-looking statements. We may not actually achieve the plans,
intentions, or expectations disclosed in our forward-looking statements
and you should not place undue reliance on our forward-looking
statements. Actual results or events could differ materially from the
plans, intentions and expectations disclosed in the forward-looking
statements we make. There are a number of important factors that could
cause Marchex’s actual results to differ materially from those indicated
by such forward-looking statements including but not limited to product
demand, order cancellations and delays, competition and general economic
conditions. These factors are described in greater detail in the “Risk
Factors” section of our most recent periodic report and registration
statement filed with the SEC. All of the information provided in this
release is as of February 13, 2019 and Marchex undertakes no duty to
update the information provided herein.

In the event the press release contains links to third party websites or
materials, the links are provided solely as a convenience to you.
Marchex is not responsible for the content of linked third-party sites
or materials and does not make any representations regarding the content
or accuracy thereof.

Adjusted OIBA represents income
(loss) from operations excluding stock-based compensation expense,
amortization of intangible assets from acquisitions, and acquisition
related costs. This measure, among other things, is one of the primary
metrics by which Marchex evaluates the performance of its business.
Adjusted OIBA is the basis on which Marchex’s internal budgets are based
and by which Marchex’s management is currently evaluated. Marchex
believes these measures are useful to investors because they represent
Marchex’s consolidated operating results, taking into account
depreciation and other intangible amortization, which Marchex believes
is an ongoing cost of doing business, but excluding the effects of
certain other expenses such as stock-based compensation, amortization of
intangible assets from acquisitions, and acquisition related costs. Adjusted
EBITDA represents income (loss) before interest, income
taxes, depreciation, amortization, stock compensation expense and
acquisition related costs. Marchex believes that Adjusted EBITDA is
another alternative measure of liquidity to GAAP net cash provided by
(used in) operating activities that provides meaningful supplemental
information regarding liquidity and is used by Marchex’s management to
measure its ability to fund operations and its financing obligations.
Financial analysts and investors may use Adjusted OIBA and Adjusted
EBITDA and Enterprise Revenue to help with comparative financial
evaluation to make informed investment decisions. Adjusted
non-GAAP income (loss) per sharerepresents Adjusted
non-GAAP income (loss) divided by GAAP diluted shares outstanding.
Adjusted non-GAAP income (loss) generally captures those items on the
statement of operations that have been, or ultimately will be, settled
in cash exclusive of certain items that are not indicative of Marchex’s
recurring core operating results and represents net income (loss)
applicable to common stockholders plus the net of tax effects of: (1)
stock-based compensation expense, (2) acquisition related costs, (3)
interest and other income (expense), and (4) amortization of intangible
assets from acquisitions. Financial analysts and investors may use
Adjusted non-GAAP income (loss) per share to analyze Marchex’s financial
performance since these groups have historically used EPS related
measures, along with other measures, to estimate the value of a company,
to make informed investment decisions, and to evaluate a company’s
operating performance compared to that of other companies in its
industry.

Marchex’s management believes that investors should have access to, and
Marchex is obligated to provide, the same set of tools that management
uses in analyzing the company’s results. These non-GAAP measures should
be considered in addition to results prepared in accordance with GAAP,
and should not be considered in isolation, as a substitute for, or
superior to, GAAP results. Marchex’s non-GAAP financial measures may be
defined differently from time to time and may be defined differently
than similar titled terms used by other companies, and accordingly, care
should be exercised in understanding how Marchex defines its non-GAAP
financial measures in this release. Marchex endeavors to compensate for
the limitations of the non-GAAP measures presented by providing the
comparable GAAP measure with equal or greater prominence, GAAP financial
statements, and detailed descriptions of the reconciling items and
adjustments, including quantifying such items, to derive the non-GAAP
measure.

MARCHEX, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(in thousands, except per share amounts)

(unaudited)

Three Months Ended

Twelve Months Ended

December 31,

December 31,

2017

2018

2017

2018

Revenue

$

21,847

$

23,131

$

90,291

$

85,251

Expenses:

Service costs (1)

11,649

12,720

49,339

47,804

Sales and marketing (1)

3,577

3,513

15,652

13,788

Product development (1)

4,285

4,041

18,094

15,423

General and administrative (1)

2,999

2,798

13,567

10,881

Amortization of intangible assets from acquisitions

—

781

—

781

Acquisition related costs

—

352

—

462

Total operating expenses

22,510

24,205

96,652

89,139

Loss from operations

(663

)

(1,074

)

(6,361

)

(3,888

)

Interest income and other, net

182

249

316

1,054

Loss before provision for income taxes

(481

)

(825

)

(6,045

)

(2,834

)

Income tax expense (benefit)

5

(188

)

42

(156

)

Net loss

(486

)

(637

)

(6,087

)

(2,678

)

Dividends applicable to participating securities

(355

)

—

(355

)

—

Net loss applicable to common stockholders

$

(841

)

$

(637

)

$

(6,442

)

$

(2,678

)

Basic and diluted net loss per Class A share applicable to common
stockholders

$

(0.02

)

$

(0.01

)

$

(0.16

)

$

(0.06

)

Basic and diluted net loss per Class B share applicable to common
stockholders

$

(0.02

)

$

(0.01

)

$

(0.15

)

$

(0.06

)

Dividends per share

$

0.50

$

—

$

0.50

$

—

Shares used to calculate basic net loss per share applicable to
common stockholders:

Class A

5,056

5,056

5,056

5,056

Class B

37,930

37,823

37,657

37,389

Shares used to calculate diluted net loss per share applicable to
common stockholders:

Class A

5,056

5,056

5,056

5,056

Class B

42,987

42,880

42,713

42,446

(1) Includes stock-based compensation allocated as follows:

Service costs

$

130

$

97

$

515

$

435

Sales and marketing

246

152

1,014

563

Product development

182

80

679

356

General and administrative

539

376

2,389

1,686

Total

$

1,097

$

705

$

4,597

$

3,040

MARCHEX, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(in thousands)

(unaudited)

December 31,

December 31,

2017

2018

Assets

Current assets:

Cash and cash equivalents

$

104,190

$

45,230

Accounts receivable, net

14,860

15,486

Prepaid expenses and other current assets

2,041

3,369

Total current assets

121,091

64,085

Property and equipment, net

2,405

2,921

Other assets, net

326

917

Goodwill

—

24,692

Intangible assets from acquisitions, net

—

20,697

Total assets

$

123,822

$

113,312

Liabilities and Stockholders’ Equity

Current liabilities:

Accounts payable

$

4,928

$

5,968

Accrued expenses and other current liabilities

5,585

7,195

Deferred revenue and deposits

313

1,782

Dividends payable

21,907

—

Total current liabilities

32,733

14,945

Other non-current liabilities

1,090

3,341

Total liabilities

33,823

18,286

Stockholders’ equity:

Class A common stock

53

53

Class B common stock

387

370

Additional paid-in capital

343,268

350,801

Accumulated deficit

(253,709

)

(256,198

)

Total stockholders’ equity

89,999

95,026

Total liabilities and stockholders’ equity

$

123,822

$

113,312

MARCHEX, INC. AND SUBSIDIARIES

(in thousands)

(unaudited)

Reconciliation of GAAP Loss from Operations to Adjusted Operating
Income Before Amortization (OIBA)

Enterprise Revenue represents total revenue less revenue generated
from contracts with YP, and for the 2018 period, total revenue less
revenue generated from contracts with YP and Dex Media, Inc.
(collectively “DexYP”). In 2017, Dex Media, Inc. acquired YP
Holdings LLC, which is the parent company of YP.

Three Months EndedDecember 31,

Twelve Months EndedDecember 31,

2017

2018

2017

2018

Core Analytics revenue3

$

7,385

$

10,860

$

29,406

$

35,390

Marketplace, Local Leads, and other analytics4

14,462

12,271

60,885

49,861

Total Revenue

$

21,847

$

23,131

$

90,291

$

85,251

3

Core analytics revenue includes revenue from analytics customers,
including those that are purchasing or buying products derived from
the company’s speech technology platform.

4

Includes revenue from marketplace, local leads and from tests,
consulting services or other analytics revenues that may continue
for a limited time but are not anticipated to continue in future
periods.

MARCHEX, INC. AND SUBSIDIARIES

Reconciliation of GAAP Net Loss per Share to Adjusted Non-GAAP
Income (Loss) per Share

Shares used to calculate diluted net loss per Class B share
applicable to common stockholders (GAAP)

42,987

42,880

42,713

42,446

Weighted average stock options and common shares subject to purchase
or cancellation (if applicable)

339

274

—

301

Diluted shares used to calculate Adjusted Non-GAAP income (loss) per
share 1

43,326

43,154

42,713

42,747

1

For the purpose of computing the number of diluted shares for
Adjusted Non-GAAP income (loss) per share, Marchex uses the
accounting guidance that would be applicable for computing the
number of diluted shares for GAAP net income (loss) per share.